China supports the yuan with interest rate cuts and mandatory foreign exchange reserves

China has moved to support the yuan by increasing the supply of foreign currency in its domestic market, as part of a multifaceted effort by the Beijing Administration to restore confidence amid slowing growth.

The people’s Bank of China (the country’s central bank) said that financial institutions will have to keep only 4% of their foreign currency reserves with it, compared to the current level of 6%, and the decision will take effect from September 15.

The move contributes to increasing the availability of foreign currencies compared to the local currency, which effectively enhances the attractiveness of the yuan.

The move also came on the heels of a reduction in mortgage down payments, aimed at helping the country’s under-pressure residential real estate market, and monetary policymakers also reduced stamp duty on stock trading over the weekend.

The combination of measures to support the economy is a sign that Beijing is uncomfortable with the growing pessimism in its financial markets.

A group of Chinese banks have cut deposit interest rates for the third time in a year, and the authorities have reduced the amount of money banks need to keep in foreign exchange reserves, with the aim of stimulating the economy and reviving the country’s struggling real estate market.